As an Amazon business owner, you are probably already aware of increasing Amazon fulfillment costs. This may be especially true if you have been in the game for five or even 10 years. Furthermore, you may have considered how these increasing costs could impact both the profitability of your business now and the future value of your business if you decide to sell. 

If so, you are not alone. All forward-thinking Amazon entrepreneurs should consider these factors, as well as what they can do to mitigate the impact of cost increases and future-proof their business.

In this article, we discuss seven things you can do to build a more resilient Amazon business. These include:

• Reducing supply chain costs
• Launching premium products
• Making sure Amazon is not overcharging you
• Building your brand to reduce customer price sensitivity
• Expanding to Shopify or other ecommerce platforms
• Increasing your marketing efficiency
• Not engaging in price wars

But first, we’ll briefly explore how Amazon seller fees have increased over the past decade. 

Related Article: The Elements of a Successful Amazon Business

Amazon Seller Fee Increases: What You Need to Know

Since Amazon FBA was launched in 2006, fulfillment fees have undergone several increases. When launched, the fulfillment fee for a small (8 oz), standard-sized package was $2.42. Now, it is $3.43, with most of the increase coming since 2020. 

While some fees have been lowered and other fee structures rearranged, overall FBA fees have increased by 96 percent for a standard-sized product and 74 percent for oversized products. At the same time, removal fees have increased by 460 percent. 

These fee increases can squeeze product profit margins and reduce overall profitability for many sellers. Some people have concerns that this, in turn, might deter some would-be buyers, lowering Amazon business valuations in the aggregate. 

While higher fees can indeed decrease margins and valuations, you are not powerless as a business owner. There are many steps you can take to mitigate the impact of increasing fulfillment fees and build a truly resilient Amazon business. 

7 Things Smart Sellers Do Differently

A ship with a skilled captain will navigate stormy seas much more effectively than a ship with an unskilled captain. While increased Amazon fulfillment fees may not amount to the equivalent of a storm in business terms, the way you position your business in relation to increased fees will certainly have a large impact on profitability and overall business value. 

Below, we discuss seven things you can do to deal with increased costs and ensure the long-term profitability and value of your business. 

1. Reduce Supply Chain Costs

If one cost increases (in this case fulfillment costs), there could be room to reduce costs elsewhere to make up for your reduced profit margins. One of the first places to look to reduce costs is your supply chain. 

For example, it might be worth exploring other manufacturers or suppliers to see if you can reduce the per-unit product sourcing costs. While this does take effort, it can pay off in the long run. Of course, make sure any replacement supplier meets or exceeds your quality standards, or your customers might take note. 

The other part of the supply chain you can focus on to reduce costs is shipping. Perhaps you can find a less expensive shipping provider to get your products from the manufacturer to the Amazon warehouse. 

Lastly, you might want to consider tariffs, or potential future tariffs, when optimizing your supply chain. If tariffs exist or are likely to exist for your products, it could make sense to choose a manufacturer in a different country that doesn’t face the same tariffs. Or, it might even make sense to choose a local supplier, which comes with the added benefit of reducing shipping costs.

2. Launch Premium Products

While reducing costs is one way to deal with squeezed margins, increasing prices is another option to consider. Instead of choosing a run-of-the-mill product and throwing it in the ring with 50 other similar products, you might want to focus on sourcing and selling high-quality, premium products instead. 

While your per-unit sourcing cost might increase, you will likely be able to offset this with an even higher retail price. When done correctly, this method can increase your margins, driving up profitability. 

Of course, you can’t just jack up the price of any existing mediocre product and expect to maintain your current level of sales. If you are going to be successful with this, you must choose premium products that customers will be willing to pay more for. 

3. Make Sure Amazon Is Not Overcharging You

While Amazon has increased fulfillment fees, there are things you can do to mitigate these costs directly. For instance, Amazon can—and often does—make mistakes when deciding your seller fees. Over time, these mistakes can add up, especially if you are selling at volume. 

These mistakes can be hard to catch when you already have so much on your plate. While you can review each transaction to ensure accuracy, this takes time. For this reason, many sellers choose to work with third-party companies, like Getida, that audit inventory and seller fees to catch mistakes. 

Again, depending on your sales volume, services like Getida can save you a lot of money, more than making up for their cost. 

4. Build Your Brand to Reduce Customer Price Sensitivity

Imagine you are shopping on Amazon for a battery bank for your phone. As you peruse through the avalanche of listings, you encounter one from a company you recognize. You’ve seen social media ads from the company, and one of your friends has (and likes) one of their car charging cables. Their product listing is crisp, clear, and attractive.

You also notice a similar-looking power bank, with the same specs and capacity, but from a company you don’t recognize. Their product images look a little less clear and enticing, and you notice some grammatical errors in their product listing. Which product are you likely to be willing to pay more for?

In general, customers are more willing to pay a premium for brands they recognize, like, and trust, compared to brands they don’t recognize or feel are generic. This is true even for similar-looking and functioning products. This highlights the importance of branding. 

While it takes time, building your business brand can allow you to increase your prices and boost your profit margins. Branding has to do with the feelings and associations customers have with your company. Businesses that are successful at branding can charge a premium. On Amazon, this is a powerful tool you can use to combat fulfillment cost increases.

5. Expand to Shopify or Other Ecommerce Platforms

If your product profit margins are getting squeezed too much on Amazon, you might consider expanding your business to sell on other platforms with lower costs. The natural alternative is Shopify, likely the most well-known ecommerce platform outside of Amazon.

Depending on your sales volume and other factors, you are likely to experience reduced fees on Shopify compared to Amazon. Again, this will allow you to boost your margins and profitability. In addition, diversifying your business to include Shopify can make it more appealing to buyers when you do decide to sell your company. 

There are downsides to Shopify, however. While markets can be saturated and margins squeezed on Amazon, it does provide you with access to a huge customer base. On Shopify, you will be responsible for bringing customers to your store. Also, it may be more difficult to set up your fulfillment process on Shopify than on Amazon. 

6. Increase Your Marketing Efficiency

Another important part of the cost/price/profit margin equation is your cost to acquire a new customer—that is, your marketing costs. If you spend a lot of money on marketing for each new sale you make, your margins will naturally be squeezed. 

This opens up the opportunity to work on your marketing efficiency in order to reduce costs and increase profit margins. For starters, it may pay to go through all of your marketing efforts and identify high-performing and poor-performing channels. For the poor performers, you may want to consider eliminating them altogether or setting about improving their performance. At the same time, it may pay to double down on the high-performing marketing channels. 

For example, if Google Ads are performing poorly but social media ads are crushing it, you might want to cut your Google ad spend and increase your social media ad spend. 

If marketing is not your forte, you could consider hiring a marketing wizard to streamline and run your efforts. A short-term added cost could lead to long-term growth and efficiency.

7. Don’t Engage in Price Wars

The last point we touch on here is more of a piece of advice than a true strategy. While it may be tempting to reduce your product price to compete in a saturated market, this is often not a winning strategy. This is especially true for small or medium-sized businesses that can’t take advantage of economies of scale as well as large businesses can. 

Engaging in a price war is a surefire way to squeeze your margins and hurt your profitability in a race to the bottom. 

Conclusion

While Amazon fulfillment fees have increased, especially in the last five years, there are many steps you can take to protect your margins and build a resilient and valuable business. By focusing on cutting costs elsewhere and boosting your prices while maintaining sales, you can help your business truly thrive, even in a crowded market.